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Wednesday, April 06, 2016

Sloanian economics

Now, I'll admit I know next to nothing about the Australian trucking industry, but I would have thought it obvious that there is a distinct possibility that the large supermarket chains (amongst other corporate customers) could easily squeeze down remuneration for owner drivers to the point that they have the incentive to work dangerous hours just to make ends meet.

Labor's response was to set up an industry specific remuneration tribunal that has come up with something like an award which sees owner drivers get higher remuneration. According to the government, (and even at least some owner driver bodies*) this is causing anguish amongst owner drivers, who say they won't get work at those rates. (And who might be telling them that, I wonder? Their corporate customers, no doubt.)

But here’s the rub: the highly paid members of the RSRT contracted
out the work of determining these rates to KPMG, which used a
one-size-fits-all model to work out the hourly rate based on an
assumption of annual hours.

But as this hired-gun outfit notes:
“The annual hours worked assumption is used to convert annual fixed cost
estimates into an hourly payment. Note, the use of this assumption
means if a road transport contractor driver works more hours than
assumed, they will be overcompensated for fixed costs incurred.
Conversely, if the driver works fewer hours than assumed, they will be
under-compensated for fixed costs.”

First: I like the way KPMG becomes a "hired gun" when it comes to making a determination she doesn't like. I wouldn't mind betting she's more sympathetic to their findings when they've commissioned by someone she's politically on side with.

Second: does the dismissal of a "one size fits all" approach seems mean she's arguing for remuneration to more accurately reflect worker's needs? I sure hope so, because that would indicate the rich can afford to have their tax rate increased. Who knew Judith would be philosophically onside with John Quiggin on that point?

Third, and here's the funniest bit, from her next paragraph:

In other words, KPMG is not making any claim that minimum hourly
payments will influence hours and, by inference, road safety. Indeed,
there is an argument that if owner-drivers can get higher payments by
dint of regulation, they may actually drive longer hours to make more
money. (Economics 101: income and substitution effects.)

Obviously, then, you just can't trust people who might be motivated to make more money than they need to cover their minimum needs. Seems to me that this suggests companies should cap director remunerations they're prepared to offer: pay too much and you just attract the greedy and untalented. I didn't realise that was her position.

This seems to be from the Sloanian "heads I win, tails you lose" school of minimal restraint, free market economics. Minimum wages that no person could survive on (as per the US): they're great for workers, who should just appreciate that they have a job. Pay them too much and there'll be businesses sacking workers all over the place. Pay owner drivers enough that they don't have to work dangerous hours to merely pay their truck loan: but they'll get greedy. Can't have that.

It's obvious (but I don't bother calling it Economics 101) that big businesses can use private contractors to screw down costs way beyond what is reasonable - we see it in the courier business too, and (in a similar vein) we get entire business models more or less based on it (Google "7-11 Franchises".) Whether this approach is the only way to tackle that may be a moot point, but I'm not convinced that this Labor approach is entirely wrong because "unions!"

Having said that, I guess I have to allow the possibility that the remuneration rates KPMG came up with are unrealistic - but if the corporate customers won't use owner drivers any more because they can do it more cheaply, I would hope that at least some of the owner drivers could off load their truck and get regular employment as a paid employee drivers (and dob in their boss if they are forced to drive for dangerous hours.)

In any event, I still find the arguments put up by Sloan to be self serving and hypocritical.

* although I note that the union guy on the radio this morning said they represent (I think) 20,000 owner drivers. Seems a lot, and I assume many of them are on side with the union position on this.